The Beginner’s Guide to Cryptocurrency Wallets

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Once you’ve talked to a few “barstool” cryptocurrency experts, you’re likely to have heard about cryptocurrency wallets.

But chances are, you’re not 100% sure what that is, how they work, or what types of cryptocurrency wallets are available.

Our beginners guide to cryptocurrency wallets will answer these questions and more to get you up-to-speed quickly.

What is a cryptocurrency wallet?

A cryptocurrency wallet is a way to store your cryptocurrency (and “private keys”). Just like a real wallet stores your cash, a cryptocurrency wallet stores your coins.

What is a wallet address?

Every cryptocurrency wallet has an identifier called an address that acts like a bank routing and account number.

Since no two wallets for a given coin will ever have the same address (which looks like a random string of numbers and letters) the address allows you to uniquely identify the recipient when you are trying to transfer crypto from one wallet to another.

How does a cryptocurrency wallet work?

Wallets hold your cryptocurrency and secure it using two “keys,” a public key and a private key. The combination of the recipient’s public key and your private key is what makes a cryptocurrency transaction possible.

Examples

What is a mobile cryptocurrency wallet?

Mobile wallets are very convenient… just download an app to your phone. And, having access to your investments while on the go can make it much easier to integrate crypto with your everyday life.

However, be warned: mobile wallets are the least secure form of wallets as mobile devices are commonly lost or stolen or otherwise busted. And since the private key is stored on the device, if the that happens you won’t be able to access your coins. No Bueno!

Some mobile wallets also provide the functionality of exporting your private keys which makes them even riskier.

Pros

Quick to access funds

Supports many devices

User-friendly UIs

Cons

Private keys stored online

Exposure to hackers, ransomware, etc

Examples

What is a paper cryptocurrency wallet?

Example of a paper bitcoin wallet // Image via O’Reilly Labs

A paper wallet is a document that contains copies of the public and private keys that make up a wallet. Often it will have QR codes so that you can quickly scan them and add the keys to a software wallet to make a transaction.

The benefit of a paper wallet is that the keys are not stored digitally anywhere, and are therefore not subject to cyber-attacks or hardware failures.

The disadvantage of a paper wallet is that paper and ink can degrade, and paper is relatively fragile – it’s definitely worth keeping well away from fire and water for obvious reasons. Furthermore, if you lose a paper wallet, you’ll never be able to access the coins sent to its address.

Pros

A great place to hold large amounts of coin for a long period of time

Provides a safety net against hackers and people with malicious intent since it is completely offline

Examples

What is a cryptocurrency hardware wallet?

A hardware wallet is another form of “cold” storage, except instead of paper, your coins and keys are stored on a small hardware device that looks and acts much like a USB drive.

On a hardware wallet, the private keys are generated on the device and never leave it, giving you a major privacy advantage. Plus, if the device is lost or stolen a new device can be rebooted on command and you won’t lose any of your crypto.

On the flip-side, hardware wallets cost money, are a little harder to use than software wallets, and add a step or two if you want to trade your crypto.

Pros

A great place to hold large amounts of coin for a long period of time

Provides a safety net against hackers and people with malicious intent since it is completely offline

Cons

Susceptible to external damage, theft and general human carelessness

Potential to lose/damage restoration details

Examples

Closing Thoughts

That’s if for our beginners guide to cryptocurrency wallets. By now you should be pretty well-versed in the difference between software and hardware cryptocurrency wallets, along with the pros and cons of each.

If you’re ready to invest in a hardware wallet, here’s a guide to the best cryptocurrency hardware wallets available, narrowed down to just the top contenders to help make your decision easy.

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